Chapter 17 State-owned financial system exacerbates economic imbalances

On July 26, 2005, the reporter received a call from Professor Chen Zhiwu.He said that he just finished attending a seminar on the theme of "Rise of Central China". At the meeting, personnel from local governments, universities and research institutions gathered together to exchange and discuss the strategy of "Rise of Central China". "What impresses me the most is that everyone is very enthusiastic about the regional development strategy, much more enthusiastic than I imagined." Chen Zhiwu said, "I was surprised by the enthusiasm of everyone talking about the government's establishment of this and intervention in that. "In Chen Zhiwu's view, the fundamental driving force of economic development is equal rights and freedom of trade.

When he expressed his doubts to an expert around him, the expert said, "If you don't do some strategic planning, what's the use of you economical people?" At this time, Chen Zhiwu realized that his own is "heterogeneous".Due to working abroad for a long time, Chen Zhiwu seldom participated in similar activities.It is difficult for him to remain silent when he sees so many scholars and officials so enthusiastic about regional development strategies. ◎Reporter: How was the meeting you attended? Chen Zhiwu: This is a sub-session of the "Rise of Central China" series of seminars, which may be held in Hubei, Henan, Jiangxi, and Shanxi provinces, or has already been held.

After I went to Changsha this time, I felt that the issues and perspectives that everyone cares about in economics and related policy circles in Beijing are very different from those of scholars and decision-makers in the provincial capital city.In Beijing, more and more scholars and policymakers realize that excessive government intervention can only produce more distortion and inequality, further widen the economic gap between regions, lead to more waste of resources, and worse Needless to say, it leads to more rent-seeking opportunities and corruption and other problems.But when it comes to the provincial or regional level, people's ideas are still quite similar to those of the planned economy era.Most provincial capital cities still believe that everything depends on the government and government policies.The differences in concepts and perspectives between big cities like Beijing and Shanghai and provincial capitals in itself also indicate the inequality of economic and development opportunities in different regions over the past few years, so that cities like Changsha, Taiyuan, and Nanchang The provincial capital cities have not been able to get a spoonful.This shows that through the original system of the Ministry of Finance and the Planning Commission, and the current system of state-owned banks and the Development and Reform Commission, the resources of the whole country have indeed been concentrated for development, but these developments are concentrated in Beijing, Shanghai and other eye-catching places, not those A large number of provincial capitals, districts, counties, towns and rural areas, this is the inequality of opportunities.

At the meeting in Hunan, an official made such a point of view: "Policy is the greatest."He gave an example: How can there be Shenzhen without policies?How can there be Shanghai Pudong without policies?Without the policy of developing the western region, how can there be hope for the economic rise of the western region?Therefore, he advocated that the country should set up a "Central Rise" office in accordance with the specifications of "Western Office" and "Northeast Office" to implement preferential policies and allocate more resources to central provinces, etc.I thought a lot after the meeting.The people present at the meeting hoped that the government would intervene in this and that, but no one had thought about it. What benefits have these provinces in central China gained under the powerful administrative intervention of the state in the past so many years?How is the development imbalance between regions today caused?After all, when these central provinces are given special care, basically every province and city in the country will be taken care of once or all at the same time.If everyone wants special treatment, no one will be special, and that's the reason.

◎Reporter: Why is this happening? Chen Zhiwu: Because if the central government allocates resources through the "visible hand", the final outcome must be: among the provinces and cities in the country, the provinces and cities with the best and most eye-catching economy and the worst economy Provinces and cities get more benefits, while those middle-level provinces get nothing. The reason is simple: officials who hold the power to allocate resources should consider their careers.Symbolic cities such as Beijing and Shanghai are not only places where senior officials live, but also places frequented by Chinese and foreign tourists. If they are well built and run well, it is easy for people to feel the achievements of China's economic development, and it is also conducive to Raise the profile of the government, so these cities don't get ignored.And the institutional structure that centralizes national resources and allocates them to the Planning Commission has precisely made the ultra-concentrated development of these iconic cities a reality, which is indeed something that previous dynasties could not do.

On the other hand, if the officials in charge of distribution allocate resources to remote areas, even if the economy there is improved a lot, not many people will feel and see that for the officials in charge of resource distribution no good.Only when the living standards of residents in remote areas are too low, affecting social stability, will the resource allocation department pay attention.This is the western development strategy of previous years.Those poor provinces will be taken care of in the end. So the final result is: regions and provinces with a medium level of development, because they do not rely on both sides, often do not get preferential treatment, but have to make sacrifices and are ignored.

◎Reporter: You mentioned that administrative officials have a preference for a few large cities or landmark projects in terms of resource allocation, so people will ask, what resources do they have in their hands? Chen Zhiwu: This is exactly the second question I want to talk about.Without the existence of the current state-owned banking system with a strong color of planning, the damage caused by the preference of administrative officials to Chinese society and the distortion and inequality of economic development among regions would not be so great. What is the reason?We might as well make a comparison with China more than a hundred years ago.At that time, the Qing government did not have a state-owned banking system. By 1898, the first household bank of the State Investment Office had just started.At that time, the central government did not have any ability to allocate the savings or financial resources of the people across the country to Beijing in any way, and it was up to the Qing government in Beijing to control and decide how to spend them.Even if the government wants to focus on the development of Beijing, focus on the development of Shanghai or any place they like, it is difficult to do so.Like my hometown in Hunan, that place may not have been so rich back then, but anyway, the savings of local farmers a hundred years ago, one is to make loans among local people; the other is to collect the money through the bank , and put it into local enterprises or ordinary people's families.Therefore, it is easy for us to imagine that at that time, the economic growth opportunities and development levels of various parts of the country were generally relatively balanced.Because local resources are basically used to develop the local economy and increase the income of local residents, the development of various regions is determined by natural endowments, rather than through unequal development distorted by administrative power.

But today the situation is different.Now rural residents also have quite a lot of savings, and their money is absorbed through state-owned bank branches in 2,800 counties across the country, and quite a lot of them are absorbed by the headquarters and branches of ICBC, China Construction Bank, Agricultural Bank of China, and Bank of China in Beijing or provincial capitals. To unify the deployment of these financial resources in which projects and by which enterprises to use them.Recently I saw a data that in 2002, the rural deposits absorbed by ICBC, CCB, and BOC accounted for 36% of all rural deposits (the ABC is special). It accounts for less than 2% of the total lending by financial institutions in rural areas.This shows that after state-owned banks absorb deposits in various townships and counties, they withdraw most of these deposits back to cities, especially Beijing, Shanghai, Tianjin and other large national cities. The gap in economic development between those big cities and other provinces is widening, and the monopoly of state-owned banks to a considerable extent has aggravated the inequality of people's income and employment opportunities between different regions.

In making such a comparison, I am not advocating the segmentation of financial markets across regions.What I want to emphasize is that after the current financial resources are consolidated by the four major state-owned commercial banks and other state-owned financial institutions, in terms of distribution mechanism, if it is not based on market orientation and the market price system to determine how to invest these concentrated financial resources, Where to put it, if it is simply allocated by some administrative officials, in the end, many non-market human relationship factors may determine which places get most of the resources, which places get a small part of resources, and which places don’t get any financial resources.

◎Reporter: Having said that, if there are no preferential policies, what about those poor areas with poor natural conditions? Chen Zhiwu: Poverty alleviation is unavoidable in any country and government, but what is more important is how to alleviate poverty.Take Western Development as an example, I don't know how much money was invested, at least hundreds of billions, right?What will be the effect of investing these hundreds of billions of dollars in the western provinces?According to my understanding and observation, in the end there will be several major landmark projects in the west.However, to what extent can several landmark projects really affect the real poor in these western provinces?There may be a little radiation effect on them, but most families won't feel it.

First of all, from an economic point of view, so many factories and projects should not have been built in the west.Because the transportation costs there are very high, you have to ship the raw materials there, and you have to ship the products out, the land transportation costs are high, and the transportation capacity is low.To this day, sea and water transport are still the modes of freight transportation with the lowest cost and the largest capacity. This is an iron reality that cannot be changed by "Foolish Old Man Moving Mountains". The coastal economy has always been very developed, and there is an objective economic reason for it.In addition, in terms of investment environment and other factors, production costs and local government efficiency in the west are also worse than those in the coast.If the government insists on investing in the west, it will be difficult to guarantee the benefits.There must be economic reasons for enterprises not wanting to invest in the western region.Instead of going against the laws of the market and investing there, the government should focus the money on other areas with convenient transportation and a mature investment environment. Secondly, building a few large factories and companies and building a few roads in the local area may provide thousands or even tens of thousands of new job opportunities, contribute to the growth of local GDP, and change several macroeconomic indicators.However, compared with the millions or tens of millions of poor people, such changes are really insignificant, and it is difficult to really improve the poverty-stricken life of the people in the west. Therefore, instead of spending tens of billions or hundreds of billions of money on a few major landmark projects, it is better to choose some better ways of poverty alleviation.One way is to provide the most basic living security for very poor families so that they will not be unable to survive.Secondly, we should provide free education subsidies to poor families, provide them with opportunities to study, work and live in other economically developed areas, encourage some people to immigrate to other areas, and fundamentally solve the poverty problem in the western region. ◎Reporter: If the regional development strategy is abandoned, what model should the government adopt to develop the social economy? Chen Zhiwu: One way to deal with "big projects" is to promote the development of private finance.The private finance I am talking about emphasizes private banks, money houses, pawnshops, and small-scale personal consumption lending or investment lending arrangements.The development of private finance like this is actually more practical for the vast majority of people and tens of thousands of families. It can give them better opportunities to carry out economic activities that they think are the most profitable. This is also the core of the Zhejiang model. .Therefore, I think it is the private financial model of Zhejiang that can really change the level of income growth in a region, not the western development model—no matter how much the investment of hundreds of billions is spent, its radiation effect is limited. Instead of investing hundreds of billions in several "big projects", it is better to turn these hundreds of billions of loans through private financial institutions into small loans for tens of thousands of families and start-up funds for them.This regional economic development model not only provides better income growth opportunities for the wider society, promotes private entrepreneurship, and increases a large number of employment opportunities, but also promotes the development of Zhejiang-style private finance in various places and initiates spontaneous growth in various places engine.Of course, this also requires abandoning the state-owned financial monopoly, opening up and encouraging private finance—only in this way can the Zhejiang model be expanded everywhere. Taking a step back, it is unrealistic for every province to receive hundreds of billions of loans.In the past, because the government could completely control the financial resources of the whole country, maybe a few provinces and cities could get tens of billions or hundreds of billions of loans in a year, but most provinces and cities could not get so much in the same year resource.Therefore, for most provinces, especially places like Hunan, Hubei, and Jiangxi in the central part, it is obviously unrealistic to rely on the care of the central government to develop their economies.They should learn from Zhejiang and revitalize private finance so that the province has the ability to turn dead wealth into living entrepreneurial capital and generate more economic and consumer demand.Only in this way can fundamentally provide better income growth opportunities for more families, and ultimately improve the local economic development level. ◎Reporter: Do you have any specific suggestions for developing private finance? Chen Zhiwu: There are some infrastructures, which are easy to implement, and can immediately help private financial institutions and financing activities.For example, is there someone who can provide an information network of loan interest and financing supply and demand data, which can compare the interest that different places are willing to lend, the amount that is willing to lend, and the amount that companies and entrepreneurs who need funds are willing to pay? Interest or rate of return, the amount of funds needed, etc., and the interest, amount, price, and contact information are published through websites, newspapers, and magazines, so that the two parties who need funds and are willing to provide funds in various places Gather, bring two parties together, and make it easier for them to make voluntary credit and investment transactions.Traditionally, private financing activities are carried out locally. Although private financing can be developed more if there are intermediary financial institutions to match transactions, even if it can only be achieved by gathering information on both the supply and demand sides and making it public , that is already a very important function of the exchange. In addition, venture capital and private equity funds are currently the most promising fields in China.We know that stock market financing is currently very limited, and banks are not willing to do loans.Private credit institutions have not developed too much, and the space is relatively small.Generally speaking, venture capital and equity funds can mobilize private funds and provide financing opportunities for small and medium-sized enterprises and entrepreneurs. This aspect should be said to have the greatest potential. Compared with stock market financing, venture capital and equity funds have many advantages. One of the most important advantages is that investors and companies that need funds can belong to the same small social or social circle, such as between friends and acquaintances. .The scope of financing is small, and the number of investment objects is limited. Both investors and financing parties can spend a lot of time getting to know each other, investors can track the operation of their investment objects, and so on.In economics, we say that the degree of information asymmetry is much lower at this time, so transactions are easier to occur.In contrast, financing through the stock market has information asymmetry, and the separation between ownership and control is very serious, and the requirements for the institutional environment are high.Therefore, when the institutional capital environment is not very good, it is not easy to develop financing in the stock market.However, one-to-one or small-scale venture capital and equity financing have a better development prospect and environment. We must realize that the free right to voluntary contracts and transactions is the basic natural right of human beings since ancient times.Non-government finance and grassroots finance are the original and most natural business forms of human beings, while state-owned finance is a later and unnatural business form.We cannot put the cart before the horse on this issue.